Lecture notes
Alternative Business Strategies
- Institution
- CCEA
A look at organic and inorganic (internal and external) growth. Advantages and disadvantages are provided.
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By: montykaren • 3 year ago
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Alternative Business StrategiesGrowth is one of the main objectives of many organisations. To achieve this firms may engage in strategies such as:
Takeovers.
Mergers.
Organic growth (internal).
Retrenchment.
Stability.
Takeover:
When one business acquires another.
This can take the form of key fixed assets or control over the important strategic decisions.
The business taken over will continue to trade as a separate business entity, or it might wholly integrate.
1. Hostile Takeover:
The situation where one company has attempted to acquire another business.
However, the management team will lodge objections to the proposed takeover.
They will attempt to persuade the owners of the business that the takeover is not in the
interest + aim to stop it.
2. Takeover by Invitation:
One company attempts to acquire another business with the full co-operation of both
management teams.
This is likely to occur where the takeover is in the best interest of both business
entities/owners.
Mergers:
Is the joining together of two or more companies to form one larger organisation.
Can be through a combination or integration of all assets + resources to produce synergistic benefits for the
merged entity.
Can take a number of forms:
o Horizontal Integration: Same industry, same stage of production.
o Vertical Integration: Same industry, different stage.
Vertical Backward: Merge with a supplier business.
Vertical Forward: Merge with a customer business.
o Lateral Integration: Involved with related product lines which do not compete with each other.
o Conglomerate: Two business involved in unrelated product lines join together in order to diversify.
Advantages Disadvantages
Predator company - quick + easy way to expand as business is Predator company face hostile reaction or opposition to a takeover
established = customer base etc. - draw negative publicity.
Cheaper option than an organic growth strategy + quicker. Also Might not yield synergistic benefits as envisaged - diseconomies of
EOS. scale - communication, control and coordination.
Acquisition represent - effective use of surplus cash by the Tend to lead to culture clashes which require careful management in
predator company - make more money. order to succeed.
Enables a predator company to defend its market These activities are expensive - customers charged more due to this.
position/share - elimination of competitor.
Takeover may yield financial benefits due to external economic Some takeovers - not in public interest + deemed anti-competitive.
changes - higher profitability.
An acquisition of a non-UK firm provide opportunity for the Could give rise to a small number of firms dominating the market
predator company to enter foreign markets. resulting in loss of consumer confidence + greater regulation.
Globalisation allows businesses to join together + take Does not provide any guarantee against job losses due to
advantage of global trading rather than focus on specific global duplication costs. Staff = de-motivated fear of job losses + business
regions. suffers due to loss of experience.
Synergy: 2+2 = 5 i.e. the sum of the 2 parts is greater than the 2 If hostile - don't get to see what you are buying possibly as the firm
separate parts e.g. share resources, ideas, save on marketing is reluctant to share information e.g. finance.
costs, distribution, EOS.
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